Stymied growth

Published September 4, 2023

A NEW report, published by the Pakistan Institute of Development Economics, shines a light on the multiple obstacles hampering the growth of the country’s fledgling engineering industry — and, by default, its small and medium enterprises.

The study, based on a survey of 328 engineering firms, apparently operating in the SME sector, points out unreliable electricity supply, lack of access to formal bank credit, exclusion from global supply chains, branding, pricing, product quality, informality, etc, as major factors affecting the growth and productivity of such enterprises.

These issues are faced by SMEs in every sector. The report underlines that a majority of industrial units — 83pc — in the country do not have plans for future expansion, owing primarily to the non-availability of electricity.

A few entrepreneurs, however, intend to invest in technology, machinery, land, and skilled labour to boost their business prospects. Likewise, the lack of access to credit for most of these firms, owing to inadequate collateral, is highlighted as another major snag in the realisation of their potential.

The report underscores the significance of addressing these challenges, recommending that the engineering firms adopt international and national quality standards.

The study also emphasises the importance of strong ties between businesses and the government, adding that political instability and unfavourable economic policies have led to mistrust and dissatisfaction among business owners.

SMEs, especially in the engineering sector, are globally regarded as the backbone of economies. Their crucial role in fostering growth, creating large-scale employment opportunities and reducing poverty is universally recognised.

Hence, successive governments here have repeatedly pledged to boost the ‘ease of doing business’ for them since the 1990s so that they can help boost overall economic growth.

However, practically speaking, little has been done to solve their problems. For example, the SME policy of 2021-25, which was widely welcomed because of its generous incentives, such as tax reductions and a Rs60bn bank credit line for collateral-free loans offered to small and medium entrepreneurs, is yet to be implemented.

Already faced with formidable challenges, SMEs are believed to have been affected the most by the ongoing economic slowdown and surging inflation.

Numerous units have already closed down because of financial troubles caused by increased costs, and thousands of workers have been fired by others to minimise losses as industries struggle to survive the present crisis.

The crisis has especially hit units operating in the domestic market. The ones linked to global export markets, directly or indirectly, have fared better, despite the difficulties.

For long-term economic stability, more exports and greater job creation for millions of individuals entering the labour market each year, Pakistan’s policymakers need to immediately focus on addressing the long-standing issues holding SMEs back from realising their full potential.

Published in Dawn, September 4th, 2023

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